oversight

DOE Loan Programs: Information on Implementation of GAO Recommendations and Program Costs

Published by the Government Accountability Office on 2016-03-03.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                           United States Government Accountability Office
                           Testimony before the Subcommittees on
                           Energy and Oversight, Committee on
                           Science, Space, and Technology, House
                           of Representatives


                           DOE LOAN
For Release on Delivery
Expected at 9:30 a.m. ET
Thursday, March 3, 2016


                           PROGRAMS

                           Information on
                           Implementation of
                           GAO
                           Recommendations
                           and Program Costs
                           Statement of Frank Rusco, Director, Natural Resources
                           and Environment




GAO-16-150T
                                              March 3, 2016

                                              DOE LOAN PROGRAMS
                                              Information on Implementation of GAO
                                              Recommendations and Program Costs
Highlights of GAO-16-150T, testimony before
the Subcommittees on Energy and Oversight,
Committee on Science, Space, and
Technology, House of Representatives




Why GAO Did This Study                        What GAO Found
DOE’s Loan Programs Office                    The Department of Energy (DOE) has made efforts to improve the
administers the LGP for certain               implementation and oversight of its loan programs and, to date, has taken
renewable or innovative energy                actions to address 15 of 24 of GAO’s prior related recommendations. DOE’s
projects and the ATVM loan program            Loan Guarantee Program (LGP), authorized by Congress in 2005, was designed
for projects to produce more fuel-            to encourage certain types of energy projects (e.g., nuclear, solar, and wind
efficient vehicles and components.            generation; solar manufacturing; and energy transmission) by agreeing to
Both programs can expose the                  reimburse lenders for the guaranteed amount of loans if the borrowers default.
government to substantial financial           DOE’s Advanced Technology Vehicles Manufacturing (ATVM) loan program,
risks if borrowers default. DOE
                                              authorized by Congress in 2007, was designed to encourage the automotive
considers these risks in calculating
                                              industry to invest in technologies to produce more fuel-efficient vehicles and their
credit subsidy costs. The law requires
that the credit subsidy costs of DOE
                                              components. In 2007, 2008, and 2010—which covered the early stages of the
loans and loan guarantees be paid for         LGP—GAO made 15 recommendations to address numerous concerns where
by appropriations, borrowers, or some         DOE had moved forward with that program before key elements were in place.
combination of both.                          For example, in its February 2007 report, GAO found that DOE’s actions had
                                              focused on expediting program implementation—such as soliciting
This testimony summarizes (1) DOE’s           preapplications for loan guarantees—rather than ensuring the department had in
progress in addressing GAO’s prior            place the critical policies, procedures, and mechanisms needed to better ensure
recommendations related to the                the program’s success. DOE has implemented 11 of the 15 recommendations. In
implementation and oversight of its           2011, 2012, and 2014, as Congress expanded the loan programs, GAO made 9
loan programs and (2) GAO’s 2015
                                              additional recommendations to address concerns about DOE making loans and
report on the credit subsidy costs of
                                              disbursing funds without having sufficient engineering expertise, sufficient and
the DOE loan programs.
                                              quantifiable performance measures for assessing program progress, or a fully
                                              developed loan monitoring function, among other things. Although DOE generally
                                              agreed with most of the 9 recommendations, to date it has implemented only 4 of
This statement is based on a body of          them.
work that GAO completed between
February 2007 and April 2015. GAO             In an April 2015 report, GAO found that DOE estimated the credit subsidy costs
made numerous recommendations in              of the loans and loan guarantees in its portfolio—that is, the total expected net
these reports and obtained updates            cost to the government over the life of the loans—to be about $2.2 billion as of
from agency officials. GAO is not             November 2014, including about $807 million for five loans on which borrowers
making any new recommendations in             had defaulted. The estimated $2.2 billion in credit subsidy costs was a decrease
this testimony.                               from DOE’s initial estimates totaling about $4.5 billion. GAO found that changes
                                              in credit subsidy cost estimates varied by loan program and the type of
                                              technology supported by the loans and loan guarantees, among other factors.
                                              Specifically, defaults on loan guarantees for two solar manufacturing projects and
                                              one energy storage project were largely responsible for an increase in the credit
                                              subsidy cost estimate for the LGP’s portfolio from $1.33 billion when the loan
                                              guarantees were issued to $1.81 billion as of November 2014. Borrowers also
                                              defaulted on two ATVM loans, but the credit subsidy cost estimate for the ATVM
                                              loan program’s portfolio decreased from $3.16 billion to $404 million as of
                                              November 2014, mainly because of a significant improvement in the credit rating
                                              of one loan. In DOE’s portfolio, 21 of the 30 projects had guaranteed revenue
                                              streams provided for under a long-term contract, such as a power purchase
                                              agreement, but none of the five defaulted loans supported projects with such a
                                              contract. GAO also found that administrative costs of the loan programs totaled
View GAO-16-150T. For more information,
contact Frank Rusco at (202) 512-3841 or      about $312 million from fiscal year 2008 through fiscal year 2014; these costs are
ruscof@gao.gov.                               not included in credit subsidy costs.

                                                                                       United States Government Accountability Office
Letter
         Letter




         Chairmen Weber and Loudermilk, Ranking Members Grayson and Beyer,
         and Members of the Subcommittees:

         I am pleased to be here today to discuss the Department of Energy’s
         (DOE) loan programs. The Loan Guarantee Program (LGP), authorized
         by Congress in 2005, 1 was designed to encourage investment in new or
         significantly improved technologies in energy projects because funding for
         such technologies can be difficult to obtain. Similarly, the Advanced
         Technology Vehicles Manufacturing (ATVM) loan program, which
         Congress authorized in 2007, 2 was designed to encourage the
         automotive industry to invest in new technologies for more fuel-efficient
         passenger vehicles and their components. Congress has authorized DOE
         to make tens of billions of dollars in loans and guarantees under these
         programs. Congress has also appropriated billions of dollars to cover
         associated credit subsidy costs—the net present value of the difference
         between projected cash flows to and from the government over the life of
         the loans or guarantees. If borrowers default on the loans, the federal
         government can be exposed to substantial financial risks.

         DOE provides information related to the costs of its loan programs in
         reports, financial statements, and budget documents. Other entities,
         including Congress and the public, rely on this information to weigh the
         benefits of these programs, but the complexity of this information can lead
         to confusion if users of this information are not aware of the context. For
         example, DOE reported in November 2014 that the loan programs had
         earned more than $810 million in interest and that DOE expected to earn
         $5 billion in interest payments over the life of the loans and loan
         guarantees. 3 However, in part because this report did not include the
         interest that DOE pays the government to finance its lending, the
         information on expected interest earnings has been misinterpreted in
         several media accounts as projecting $5 billion in profits for the DOE loan
         programs. We have examined this and other issues related to DOE’s loan




         1
          Pub. L. No. 109-58, title XVII, 119 Stat. 594, 1117-22 (2005), codified at 42 U.S.C.
         §16511-16516.
         2
          Pub. L. No. 110-140, §136, 121 Stat. 1492, 1514 (2007), codified at 42 U.S.C. §17013.
         3
          DOE Loan Programs Office, LPO Financial Performance (Washington, D.C.: November
         2014) accessed February 23, 2016, http://energy.gov/sites/prod/files/2014/11/f19/DOE-
         LPO-Financial Performance November2014.pdf




         Page 1                                                                         GAO-16-150T
             programs in a series of reports and testimonies. (See a list of related
             GAO products at the end of this statement.)

             My testimony today draws on this body of work, in which we have
             reported on our concerns about DOE’s implementation and oversight of
             the programs and recommended actions for improvement. I will focus my
             remarks today on (1) DOE’s progress in addressing our prior
             recommendations related to the implementation and oversight of its loan
             programs and (2) our most recent report on the credit subsidy costs of the
             DOE loan programs.

             For this statement, we relied on our reports that were issued from
             February 2007 through April 2015. 4 Detailed information about the scope
             and methodology used to conduct our prior work can be found in each of
             our issued reports. Regarding the status of prior recommendations, we
             followed up with agency officials to determine what actions they had
             taken. The work on which this statement is based was conducted in
             accordance with generally accepted government auditing standards.
             Those standards require that we plan and perform the audit to obtain
             sufficient, appropriate evidence to provide a reasonable basis for our
             findings and conclusions based on our audit objectives. We believe that
             the evidence obtained provides a reasonable basis for our findings and
             conclusions based on our audit objectives.


             Since issuing its first loan guarantee in 2009, DOE’s Loan Programs
Background   Office, which administers the LGP and ATVM program, has issued a total


             4
              GAO, DOE Loan Programs: Current Estimated Net Costs Include $2.2 Billion in Credit
             Subsidy, Plus Administrative Expenses, GAO-15-438 (Washington, D.C.: Apr. 27, 2015);
             DOE Loan Programs: DOE Should Fully Develop Its Loan Monitoring Function and
             Evaluate Its Effectiveness, GAO-14-367 (Washington, D.C.: May 1, 2014); DOE Loan
             Guarantees: Further Actions Are Needed to Improve Tracking and Review of Applications,
             GAO-12-157 (Washington, D.C.: Mar. 12, 2012); Department of Energy: Advanced
             Technology Vehicle Loan Program Implementation Is Under Way, but Enhanced
             Technical Oversight and Performance Measures Are Needed, GAO-11-145 (Washington,
             D.C.: Feb. 28, 2011); Department of Energy: Further Actions Are Needed to Improve
             DOE’s Ability to Evaluate and Implement the Loan Guarantee Program, GAO-10-627
             (Washington, D.C.: July 12, 2010); Department of Energy: New Loan Guarantee Program
             Should Complete Activities Necessary for Effective and Accountable Program
             Management, GAO-08-750 (Washington, D.C.: July 7, 2008); and The Department of
             Energy: Key Steps Needed to Help Ensure the Success of the New Loan Guarantee
             Program for Innovative Technologies by Better Managing Its Financial Risk,
             GAO-07-339R (Washington, D.C.: Feb. 28, 2007).




             Page 2                                                                    GAO-16-150T
of more than $30 billion in loans and loan guarantees. The LGP was
originally designed to address a fundamental impediment to innovative
and advanced energy projects: securing funding. Projects that entail
risks—either that new technology will not perform as expected or that the
borrower or project itself will not perform as expected—can face difficulty
securing enough affordable financing to survive the period between
development and commercialization of innovative technologies. Because
the risks that commercial lenders must assume to support new
technologies can put the cost of private financing out of reach, companies
may not be able to commercialize innovative technologies without the
federal government’s financial support.

To accurately account for the expected and actual costs of federal loan
programs, agencies estimate the costs of a program in accordance with
the Federal Credit Reform Act of 1990 by calculating credit subsidy costs
for loans and loan guarantees, excluding administrative costs. DOE
estimates the credit subsidy cost for each loan or loan guarantee by,
among other things, projecting disbursements to the borrower as well as
interest and principal repayments from the borrower, and adjusting these
projected cash flows for the risk of default and other factors. Paying the
credit subsidy cost is either the responsibility of the borrower or the
program, depending on whether Congress has provided appropriations to
cover such costs.

For the LGP, Title XVII of the Energy Policy Act of 2005 (EPAct)—
specifically section 1703—authorized DOE to guarantee loans for energy
projects that (1) use new or significantly improved technologies as
compared with commercial technologies already in service in the United
States and (2) avoid, reduce, or sequester emissions of air pollutants or
man-made greenhouse gases. Congress provided DOE $34 billion in loan
guarantee authority for section 1703 loan guarantees. Initially, Congress
provided no appropriation to cover the credit subsidy costs of loan
guarantees under section 1703, requiring all borrowers receiving a loan
guarantee to pay to offset the credit subsidy costs of their own projects. In
February 2009, Congress passed the American Recovery and
Reinvestment Act of 2009 (Recovery Act), 5 which amended Title XVII by
adding section 1705, under which DOE could guarantee loans for projects




5
Pub. L. No. 111-5, 123 Stat. 115 (2009).




Page 3                                                            GAO-16-150T
using existing commercial technologies. 6 For section 1705, the Recovery
Act provided $2.5 billion to cover credit subsidy costs, which DOE
estimated would suffice to cover those costs for about $18 billion in loan
guarantees. 7 In April 2011, Congress appropriated $170 million to pay
credit subsidy costs for a subset of projects under section 1703,
specifically, energy efficiency and renewable energy projects. DOE
estimated this appropriation would cover those costs for about $848
million in loan guarantees. As table 1 shows, DOE had about $28.7 billion
remaining in loan guarantee authority under section 1703 as of November
2014. At that time, it also had three open solicitations for loan guarantee
applications that accounted for much of that remaining authority. The
ATVM loan program remains open to applications on a rolling basis and
had about $16 billion remaining in loan authority as of November 2014.

Table 1: Loan or Loan Guarantee Authority and Credit Subsidy Appropriations for
Department of Energy Loan Programs (as of November 2014)

Credit subsidy costs are the net present value of the difference between projected cash
flows to and from the government over the life of the loans or guarantees.
                                   Total authorized Amount appropriated                        Remaining loan/
                                    loan/guarantee       to cover credit                            guarantee
    Program                                 amount        subsidy costs                              authority
                                                                                          a
    LGP section 1703                                                       $170 million            $28.7 billion
                                             $34 billion                                  b
    LGP section 1705                                                        $2.5 billion                     $0
                                                                                           c
    ATVM                                     $25 billion                    $7.5 billion             $16 billion
    Total                                   $59 billion                    $10.2 billion          $44.7 billion
Legend: LGP = Loan Guarantee Program; ATVM = Advanced Technology Vehicles Manufacturing
Source: DOE data. | GAO-16-150T
a
 Congress appropriated these funds to pay credit subsidy costs for a subset of projects, specifically
energy efficiency and renewable energy projects.
b
    The American Recovery and Reinvestment Act of 2009 provided for these funds.
c
 The fiscal year 2009 continuing resolution appropriated these funds to support the program’s direct
loans to manufacturers of passenger vehicles and their components by paying the credit subsidy
costs of the loans.




6
 The authority to enter into loan guarantees under section 1705 expired on September 30,
2011. Projects supported by section 1705 were required to employ renewable energy
systems, electric power transmission systems, or leading-edge biofuels that met certain
criteria.
7
 The Recovery Act initially appropriated nearly $6 billion to pay credit subsidy costs;
however, Congress subsequently reduced this amount by transfer and rescission to fund
other priorities.




Page 4                                                                                             GAO-16-150T
                      DOE has made efforts to improve its loan program implementation and
DOE Has Made          oversight and, to date, has taken actions in response to 15 of our 24 prior
Efforts to Improve    recommendations. (See app. I for details on the status of each of the 24
                      recommendations we have made concerning the DOE loan programs). In
Loan Program          2007, 2008, and 2010—which covered the early stages of the LGP—we
Implementation and    made 15 recommendations to address numerous issues where DOE had
                      moved forward with the program before key elements were in place. 8
Oversight by          DOE implemented 11 of our 15 recommendations from this period. For
Implementing Some     example:

but Not All Related            In our February 2007 report, 9 we found that DOE’s actions had
GAO                             focused on expediting program implementation—such as soliciting
                                preapplications for loan guarantees—rather than ensuring the
Recommendations                 department had in place the critical policies, procedures, and
                                mechanisms necessary to better ensure the program’s success.
                                We made five recommendations addressing these concerns. DOE
                                agreed with and implemented all 5 of these recommendations by
                                establishing key policies and procedures and issuing final program
                                regulations, among other things.

                               In contrast, in our July 2010 report, 10 we found that, among other
                                things, DOE had favored some applicants by, for example,
                                deviating from its stated review procedures. DOE did not concur
                                with—and has not taken actions to address—our recommendation
                                that it take steps to ensure that its implementation of the LGP
                                treats applicants consistently.

                      As Congress expanded the DOE loan programs to include 1705 projects
                      and ATVM, we issued additional reports in 2011, 2012, and 2014
                      highlighting our concerns about DOE making loans and disbursing funds
                      without having sufficient expertise and performance measures, among
                      other things. Our reports included recommendations to address these
                      issues from February 2011 through May 2014. To date, DOE has
                      implemented four of the nine recommendations but has not addressed
                      the remaining five. For example:




                      8
                      GAO-07-339R, GAO-08-750, and GAO-10-627.
                      9
                      GAO-07-339R.
                      10
                          GAO-10-627.




                      Page 5                                                            GAO-16-150T
        In February 2011, 11 we found that DOE was using ATVM staff with
         largely financial, and not technical, expertise to evaluate the
         progress of projects to produce more fuel-efficient passenger
         vehicles and their components. We recommended that DOE
         accelerate efforts to engage sufficient engineering expertise to
         verify that borrowers are delivering projects as required by the
         loan agreements. DOE implemented our recommendation by
         changing its budgeting practices for monitoring ATVM loans to
         better ensure that funds would be available to engage
         independent engineering expertise; DOE also changed its policy
         for engaging technical expertise to align with the Title XVII LGP
         policy.

        Also in our February 2011 report, 12 we found that DOE did not
         have sufficient performance measures that would enable the
         department to fully assess whether the ATVM program had
         achieved its program goals, including protecting taxpayers’
         financial interests. We recommended that DOE develop sufficient
         and quantifiable performance measures for its program goals.
         DOE disagreed with this recommendation and took no steps to
         implement it. As a result, Congress does not have important
         information on whether the funds DOE has spent so far are
         furthering the program’s goals and, consequently, whether the
         program warrants continued support.

DOE generally agreed with most of the additional recommendations we
made in our March 2012 and May 2014 reports as the programs
expanded, 13 but it has not fully implemented them. For example, in May
2014 we found that DOE adhered to its monitoring policies inconsistently
or not at all because the Loan Programs Office was still developing its
organizational structure, including its staffing. We recommended that
DOE fully develop its organizational structure by staffing key loan
monitoring positions, among other things. DOE agreed and has taken
steps to identify key staffing positions but, as of February 2016, most of
these positions remain unfilled. Filling these positions would help DOE
carry out activities critical to monitoring these loans.



11
 GAO-11-145.
12
 GAO-11-145.
13
 GAO-12-157 and GAO-14-367.




Page 6                                                          GAO-16-150T
                        In our April 2015 report, we found that DOE estimated the credit subsidy
Estimated Net Costs     costs of the loans and loan guarantees in its portfolio to be about $2.2
of DOE’s Loan           billion as of November 2014, 14 including about $807 million for five loans
                        on which the borrowers had defaulted. At that time, the portfolio consisted
Programs Include        of 34 loans and loan guarantees in support of 30 projects in a diverse
about $2.2 Billion in   array of technologies. We also found that administrative costs totaled
                        about $312 million from fiscal year 2008 through fiscal year 2014. 15
Credit Subsidy Costs,   The estimated $2.2 billion in credit subsidy costs was a decrease from
Plus Administrative     initial DOE estimates totaling about $4.5 billion, 16 and we found that
                        changes in credit subsidy cost estimates varied by loan program and the
Expenses                type of technology supported by the loans and loan guarantees, and by
                        other factors, such as the availability of a steady stream of revenue for a
                        project. Specifically, defaults on loan guarantees for two solar
                        manufacturing projects and one energy storage project were largely
                        responsible for an increase in the credit subsidy cost estimate for DOE’s
                        LGP portfolio from $1.33 billion (when the loan guarantees were issued)
                        to $1.81 billion as of November 2014. Borrowers also defaulted on two
                        ATVM loans, but the credit subsidy cost estimate for DOE’s ATVM loan
                        program’s portfolio decreased from initial DOE estimates totaling about
                        $3.16 billion to $404 million as of November 2014, mainly because of a
                        significant improvement in the credit rating of one loan. This decrease
                        was enough to more than offset the increases from the defaults in DOE’s
                        overall loan portfolio. See table 2 for changes in DOE’s credit subsidy
                        cost estimates.




                        14
                         GAO-15-438.
                        15
                         GAO-15-438.
                        16
                          Initial credit subsidy cost estimates are based on disbursements for each loan guarantee
                        and reflect the initial credit subsidy rates as estimated by DOE.




                        Page 7                                                                       GAO-16-150T
Table 2: Changes in Credit Subsidy Cost Estimates Since Initiation for the
Department of Energy’s Loan Programs, as of November 2014
Credit subsidy costs are the net present value of the difference between projected cash
flows to and from the government over the life of the loans or guarantees.

                                                               Sum of                                       Sum of
                                                      Total      initial                                estimated
                                                  obligated estimated                               credit subsidy
                                         Number        loan/     credit                                costs as of
                               Number of      in guarantee    subsidy                                   November
                                                           a           b                                          c
Program                 loans/guarantees default amount         costs                                        2014
Dollars in millions
LGP section
1705
Solar generation                              14            0        $10,167              $1,233            $1,163
Wind generation                                   4         0           1,674                 48                31
Solar                                             3         2             746                 58               591
manufacturingd
Geothermal                                        3         0             532                 34                50
        e
Other                                             3         1             491                 25                40
LGP section                                   27            3         13,609               1,398             1,875
1705 subtotal
LGP section                                       2         0           6,184               (73)f              (68)
1703 – nuclear
generation
ATVM                                              5         2           8,061              3,163               404
Total                                         34            5        $27,854              $4,488            $2,211
Legend: LGP = Loan Guarantee Program; ATVM = Advanced Technology Vehicles Manufacturing
Source: GAO analysis of DOE data. | GAO-16-150T

Note: Numbers may not sum due to rounding.
a
Portions of some loan guarantees have been deobligated since the loan guarantee agreement was
made.
b
 Initial credit subsidy cost estimates are based on disbursements for each loan guarantee and reflect
the initial credit subsidy rate estimate.
c
    Current credit subsidy costs are based on disbursements for each loan guarantee.
d
    Includes one loan guarantee that has not yet been disbursed.
e
 Includes loan guarantees for one biomass project, one energy transmission project, and one energy
storage project. These projects have been combined to prevent disclosure of credit subsidy data for
individual loan guarantees.
f
 The credit subsidy cost estimate for the LGP section 1703 loans is negative, meaning the present
value of projected cash flows to the government exceeds the present value of projected cash flows
from the government. Borrowers for these loans were not required to pay to offset credit subsidy
costs.




Page 8                                                                                                 GAO-16-150T
We found in our April 2015 report that most projects in DOE’s portfolio
have completed construction and are in operation—producing power or
automobiles, for instance. None of the projects with loans in default had
revenue streams that were provided for under long-term contracts for the
sale of energy produced by the project pursuant to a power purchase
agreement, offtake agreement, or similar contractual language. Power
purchase agreements and offtake agreements generally guarantee a
stream of revenue to the project owner for 20 or 25 years after the project
begins generating electricity, effectively ensuring a buyer for the produced
power. In DOE’s portfolio, 21 of the 30 projects supported by the program
included power purchase or offtake agreements.

Regarding administrative costs, our April 2015 report found that such
costs for the programs have totaled about $312 million from fiscal year
2008 through fiscal year 2014, including approximately $251.6 million for
LGP and $60.6 million for the ATVM loan program. 17 We also found that,
for the LGP, the fees DOE has collected have not been sufficient to cover
all of its administrative expenses for the program, in part because the
maintenance fees on the current loan guarantees were too low to cover
ongoing monitoring costs. 18 As a result, some of the administrative
expenses have been paid with taxpayer funds. DOE addressed the low
maintenance fee levels by changing the fee structure in its new
solicitations, announced from December 2013 to December 2014, to
allow increased maintenance fees—up to $500,000 per year. DOE
officials told us that the new fee structure should allow DOE to cover a
greater portion of LGP monitoring costs on new loan guarantees.
However, the actual fee amounts will depend on the individual loan
guarantees and negotiation of the loan guarantee agreements, making
predictions of future fee income a challenge. It is now too early to tell
whether DOE’s actions will result in sufficient funds to offset LGP’s future
administrative costs.

Chairmen Weber and Loudermilk, Ranking Members Grayson and Beyer,
and Members of the Subcommittees, this completes my prepared
statement. I would be pleased to respond to any questions that you may
have at this time.



17
  GAO, DOE Loan Programs: Current Estimated Net Costs Include $2.2 Billion in Credit
Subsidy, Plus Administrative Expenses, GAO-15-438 (Washington, D.C.: Apr. 27, 2015).
18
 GAO-15-438. ATVM administrative expenses are paid for from program appropriations.




Page 9                                                                   GAO-16-150T
                  If you or your staff members have any future questions about this
GAO Contact and   testimony, please contact me at (202) 512-3841 or ruscof@gao.gov.
Staff             Contact points for our Offices of Congressional Relations and Public
                  Affairs may be found on the last page of this statement. Key contributors
Acknowledgments   to this testimony include Karla Springer, Assistant Director; Michael
                  Krafve; Cynthia Norris; Barbara Timmerman; and Jarrod West.




                  Page 10                                                         GAO-16-150T
Appendix I: Status of GAO
                                              Appendix I: Status of GAO Recommendations
                                              on Department of Energy Loan Programs



Recommendations on Department of Energy
Loan Programs

GAO-07-339R
Recommendation                                         Status                 Action taken
The Secretary of Energy should ensure that the         Closed - Implemented   In May 2007, the Department of Energy (DOE)
department, before selecting eligible projects for                            implemented this recommendation when its Office of
loan guarantees, establishes policies and                                     Finance and Accounting established standard operating
procedures to account for loan guarantees.                                    procedures for accounting and reporting for DOE loan
                                                                              programs (SOP 1.4). Among other things, the
                                                                              procedures enable DOE to account for payments
                                                                              received from applicants for administrative costs, which
                                                                              is important because the Energy Policy Act of 2005,
                                                                              which established the Loan Guarantee Program (LGP),
                                                                              requires that borrowers be charged fees to cover DOE’s
                                                                              costs to administer the program. DOE established the
                                                                              procedures before it issued the first loan guarantee in
                                                                              2010, meeting the intent of our recommendation.
The Secretary of Energy should ensure that the         Closed - Implemented   In March 2009, DOE issued a Credit Policies and
department, before selecting eligible projects for                            Procedures Manual that lays out policies and
loan guarantees, establishes policies and                                     procedures for estimating subsidy costs and defines
procedures for developing subsidy and                                         administrative costs. In addition, according to DOE, in
administrative cost estimates.                                                November 2008 the Office of Management and Budget
                                                                              approved the LGP’s model for calculating the credit
                                                                              subsidy costs of loan guarantees. DOE’s solicitations
                                                                              describe how it will charge these administrative costs to
                                                                              applicants. These actions meet the intent of our
                                                                              recommendation.
The Secretary of Energy should ensure that the         Closed - Implemented   DOE satisfied our recommendation to establish policies
department, before selecting eligible projects for                            and procedures for selecting lenders and loans to
loan guarantees, establishes policies and                                     guarantee and for monitoring lenders and loans once
procedures for selecting lenders and loans to                                 the guarantees have been issued. On October 23, 2007,
guarantee and for monitoring lenders and loans                                and December 4, 2009, DOE issued final rules that
once the guarantees have been issued.                                         incorporated policies and procedures for the issuance of
                                                                              solicitations, submission of applications, and the
                                                                              evaluation of loan guarantee applications. The rules also
                                                                              lay out the requirements for eligible lenders. In addition,
                                                                              on March 5, 2009, DOE issued a credit policies and
                                                                              procedures manual for the program that provides further
                                                                              detail on policies and procedures for selecting lenders
                                                                              and loans to guarantee. The manual also provides
                                                                              policies and procedures for credit monitoring of projects
                                                                              once loan guarantees have been issued.
The Secretary of Energy should ensure that the         Closed - Implemented   On October 23, 2007, and December 4, 2009, DOE
department, before selecting eligible projects for                            issued final rules implementing its Title XVII LGP for
loan guarantees, issues final program regulations                             innovative energy technologies. The rules elaborate on
that protect the government’s interests, manage                               the program established by Title XVII by defining the
risk, and ensure that borrowers are aware of                                  technologies and types of projects covered by the
program requirements.                                                         program, as well as the financial structure required for
                                                                              projects. Issuing a rule is in keeping with the intent of
                                                                              our recommendation to provide greater protection of the
                                                                              government’s interests because this rule, like other
                                                                              regulations, cannot be changed without public or
                                                                              congressional input and carries the force of law.




                                              Page 1                                                                        GAO-16-150T
                                               Appendix I: Status of GAO Recommendations
                                               on Department of Energy Loan Programs




The Secretary of Energy should ensure that the          Closed - Implemented   DOE has taken actions to define program goals and
department, before selecting eligible projects for                             performance measures in order to determine program
loan guarantees, further defines program goals                                 effectiveness.
and objectives tied to outcome measures for
determining program effectiveness.
GAO-08-750
Recommendation                                          Status                 Action taken
The Secretary of Energy should direct the Chief        Closed - Implemented    DOE substantively addressed our recommendation with
Financial Officer to amend application guidance to                             its October 2009 and August 2010 solicitations, which
clarify the program’s equity requirements to the 16                            provided an expanded definition of equity that also
companies invited to apply for loan guarantees and                             addressed exclusions.
in future solicitations before substantially reviewing
LGP applications.
The Secretary of Energy should direct the Chief         Closed - Implemented   Since our 2008 recommendation, DOE developed nine
Financial Officer to amend application guidance to                             performance measures to evaluate the program’s
further develop and define performance measures                                efficiency and outcomes, implementing our
and metrics to monitor and evaluate program                                    recommendation.
efficiency, effectiveness, and outcomes before
substantially reviewing LGP applications.
The Secretary of Energy should direct the Chief      Closed - Implemented      In October 2008, the Loans Programs Office (LPO)
Financial Officer to amend application guidance to                             began using a DOE software system to track
improve the LGP’s full tracking of the program’s                               administrative costs within the office, including, for
administrative costs by developing an approach to                              example, staff salaries and travel associated with
track and estimate costs associated with offices                               reviewing the applications for various solicitations. In
that directly and indirectly support the program and                           addition, DOE staff in the field office that was reviewing
including those costs as appropriate in the fees                               the greatest number of loan guarantee applications
charged to applicants before substantially                                     reached an agreement with the program concerning
reviewing LGP applications.                                                    performance of and reimbursement for this work.
The Secretary of Energy should direct the Chief         Closed – Not           Since our 2008 recommendation, DOE increased the
Financial Officer to amend application guidance to      Implemented            content guidelines for engineering reports in later
include more specificity on the content of                                     solicitations, partly implementing our recommendation.
independent engineering reports and on the                                     However, the actions taken by DOE did not fully address
development of project cost estimates to provide                               the intent of our recommendation.
the level of detail needed to better assess overall
project feasibility before substantially reviewing
LGP applications.
The Secretary of Energy should direct the Chief         Closed – Implemented To facilitate timely action on applications for loan
Financial Officer to clearly define needs for                                guarantees, DOE developed “standing source” lists of
contractor expertise to facilitate timely application                        contractors with legal, engineering, financial, and
reviews before substantially reviewing LGP                                   marketing expertise. Listed contractors were determined
applications.                                                                by DOE to be capable of providing specific services that
                                                                             DOE identified. Such contractors were available for
                                                                             selection, under a competitive process, to review
                                                                             projects under consideration for loan guarantees.
                                                                             Developing the standing list helped ensure that DOE
                                                                             would have the necessary expertise readily available
                                                                             during the review process.




                                               Page 2                                                                        GAO-16-150T
                                           Appendix I: Status of GAO Recommendations
                                           on Department of Energy Loan Programs




The Secretary of Energy should direct the Chief      Closed – Implemented   In March 2009, DOE issued a Credit Policies and
Financial Officer to complete detailed internal loan                        Procedures Manual that established detailed internal
selection policies and procedures that lay out roles                        loan selection policies and procedures, including roles
and responsibilities and criteria and requirements                          and responsibilities for LGP staff, and criteria for
for conducting and documenting analyses and                                 conducting analyses and decision making, but the
decision making before substantially reviewing                              manual did not provide detailed guidance for
LGP applications.                                                           documenting analyses. In October 2011, LGP revised its
                                                                            Credit Policies and Procedures manual to also include
                                                                            specific instructions to LGP staff to document their
                                                                            analyses and decisions in LGP’s records management
                                                                            system.
GAO-10-627
Recommendation                                      Status                  Action taken
The Secretary of Energy should direct the program Closed – Not              According to DOE officials, LGP adheres to and
management to develop relevant performance            Implemented           supports the current DOE Strategic Plan. However, LGP
goals that reflect the full range of policy goals and                       could not provide documentation or evidence of either
activities for the program, and to the extent                               an improvement in alignment between DOE
necessary, revise the performance measures to                               performance goals and LGP policy goals or the revision
align with these goals.                                                     of LGP performance measures. We continue to believe
                                                                            that relevant and revised performance goals and
                                                                            measures would improve DOE’s ability to evaluate and
                                                                            implement the LGP.
The Secretary of Energy should direct the program Closed – Not              DOE did not concur with the recommendation and has
management to revise the process for issuing loan Implemented               not taken action to implement it.
guarantees to clearly establish what circumstances
warrant disparate treatment of applicants so that
DOE’s implementation of the program treats
applicants consistently unless there are clear and
compelling grounds for doing otherwise.
The Secretary of Energy should direct the program Closed – Not              DOE did not concur with the recommendation and has
management to develop an administrative appeal Implemented                  not taken action to implement it.
process for applicants who believe their
applications were rejected in error and document
the basis for conclusions regarding appeals.
The Secretary of Energy should direct the program Closed – Implemented In September 2010, DOE created a mechanism for
management to develop a mechanism to                                   submitting feedback—including anonymous feedback—
systematically obtain and address feedback from                        through its website.
program applicants, and, in so doing, ensure that
applicants’ anonymity can be maintained, for
example, by using an independent service to
obtain the feedback.
GAO-11-145
Recommendation                                      Status                  Action taken
The Secretary of Energy should direct the ATVM      Closed – Implemented Since issuance of our report in February 2011, DOE
Program Office to accelerate efforts to engage                           changed its budgeting practices for monitoring ATVM
sufficient engineering expertise to verify that                          loans to better ensure that funds would be available to
borrowers are delivering projects as agreed.                             engage independent engineering expertise when
                                                                         needed. DOE also changed its policy for engaging
                                                                         technical expertise, making it the same as for the Title
                                                                         XVII LGP.




                                           Page 3                                                                      GAO-16-150T
                                             Appendix I: Status of GAO Recommendations
                                             on Department of Energy Loan Programs




The Secretary of Energy should direct the ATVM        Closed – Not           In its original comments to our report, and in a
Program Office to develop sufficient and              Implemented            subsequent statement of its management decisions,
quantifiable performance measures for its three                              DOE stated that it disagreed with our recommendation.
goals.                                                                       DOE stated its belief that the ATVM program adhered to
                                                                             the requirements of the statute authorizing the program
                                                                             and that the performance measures we suggested
                                                                             would greatly expand the scope of the program—DOE
                                                                             stated it would not develop any new measures not
                                                                             specified by Congress.
GAO-12-157
Recommendation                                        Status                 Action taken
The Secretary of Energy should direct the             Open                   DOE did not concur with the recommendation and has
Executive Director of the Loan Programs Office to                            not taken action to implement it.
commit to a timetable to fully implement a
consolidated system that enables the tracking of
the status of applications and that measures
overall program performance.
The Secretary of Energy should direct the             Open                   DOE concurred with this recommendation but has not
Executive Director of the Loan Programs Office to                            provided us with information regarding its
ensure that the new records management system                                implementation.
contains documents supporting past decisions, as
well as those in the future.
The Secretary of Energy should direct the             Closed – Implemented In December 2015, DOE published its revised LPO
Executive Director of the Loan Programs Office to                          credit policies and procedures manual, which sets the
regularly update the LGP’s credit policies and                             basic criteria for the determination of eligibility,
procedures manual to reflect current program                               underwriting of loan and loan guarantee requests, and
practices to help ensure consistent treatment for                          the management of closed loans and loan guarantees.
applications to the program.




GAO-14-367
Recommendation                                        Status                 Action taken
The Secretary of Energy should direct the              Open                  DOE officials told us that they developed short- and
Executive Director of the Loan Programs Office to                            long-term plans for staffing key loan monitoring positions
fully develop its organizational structure by staffing                       and risk mitigation positions within the Portfolio
key monitoring positions.                                                    Management Division and Risk Management Division,
                                                                             respectively. In February 2016, DOE provided us with
                                                                             evidence that it had identified 24 key positions in these
                                                                             two divisions; however, most of these positions remain
                                                                             unfilled, so the recommendation status remains open.
The Secretary of Energy should direct the             Closed – Implemented In February 2016, DOE officials provided us with
Executive Director of the Loan Programs Office to                          evidence that they had completed and implemented
fully develop its organizational structure by                              updates for their management and reporting systems.
updating management and reporting software.




                                             Page 4                                                                       GAO-16-150T
                                           Appendix I: Status of GAO Recommendations
                                           on Department of Energy Loan Programs




The Secretary of Energy should direct the           Open                      In February 2016, DOE officials provided us with
Executive Director of the Loan Programs Office to                             evidence that they developed, revised, reviewed, and
fully develop its organizational structure by                                 implemented the majority of their portfolio monitoring
completing policies and procedures for loan                                   and risk management policies and procedures.
monitoring and risk management.                                               However, some key work processes (e.g., Alleged
                                                                              Fraud, Waste, or Abuse reporting and Risk Assessment
                                                                              processes) are still under development, so the
                                                                              recommendation status remains open.
The Secretary of Energy should direct the           Closed – Implemented In February 2016, DOE officials told us that the Risk
Executive Director of the Loan Programs Office to                        Management Division evaluates the effectiveness of
evaluate the effectiveness of DOE’s monitoring by                        DOE’s monitoring via annual internal assessments.
performing the credit review, compliance, and                            DOE began the first of these annual assessments in
reporting functions outlined in the 2011 policy                          October 2015 and provided GAO with updated
manual for DOE’s loan programs.                                          procedures for conducting these assessments.
Source: GAO | GAO-16-150T

                                           Note: Recommendations remain open until they are designated as closed – implemented or closed –
                                           not implemented.




                                           Page 5                                                                            GAO-16-150T
Related GAO Products


             DOE Loan Programs: Current Estimated Net Costs Include $2.2 Billion in
             Credit Subsidy, Plus Administrative Expenses. GAO-15-438. Washington,
             D.C.: April 27, 2015.

             DOE Loan Programs: DOE Has Made More Than $30 Billion in Loans
             and Guarantees and Needs to Fully Develop Its Loan Monitoring
             Function. GAO-14-645T. Washington, D.C.: May 30, 2014.

             DOE Loan Programs: DOE Should Fully Develop Its Loan Monitoring
             Function and Evaluate Its Effectiveness. GAO-14-367. Washington, D.C.:
             May 1, 2014.

             Federal Support for Renewable and Advanced Energy Technologies.
             GAO-13-514T. Washington, D.C.: April 16, 2013.

             Department of Energy: Status of Loan Programs. GAO-13-331R.
             Washington, D.C.: March 15, 2013.

             DOE Loan Guarantees: Further Actions Are Needed to Improve Tracking
             and Review of Applications. GAO-12-157. Washington, D.C.: March 12,
             2012.

             Department of Energy: Advanced Technology Vehicle Loan Program
             Implementation Is Under Way, but Enhanced Technical Oversight and
             Performance Measures Are Needed. GAO-11-145. Washington, D.C.:
             February 28, 2011.

             Department of Energy: Further Actions Are Needed to Improve DOE’s
             Ability to Evaluate and Implement the Loan Guarantee Program.
             GAO-10-627. Washington, D.C.: July 12, 2010.

             Department of Energy: New Loan Guarantee Program Should Complete
             Activities Necessary for Effective and Accountable Program
             Management. GAO-08-750. Washington, D.C.: July 7, 2008.

             Department of Energy: Observations on Actions to Implement the New
             Loan Guarantee Program for Innovative Technologies. GAO-07-798T.
             Washington, D.C.: April 24, 2007.

             The Department of Energy: Key Steps Needed to Help Ensure the
             Success of the New Loan Guarantee Program for Innovative
             Technologies by Better Managing Its Financial Risk. GAO-07-339R.
             Washington, D.C.: February 28, 2007.



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